Pushing Lithuania’s economy from adequate to exceptional

VILNIUS - Through swift and appropriate action Lithuania’s officials and business leaders were able to successfully steer the country on a course through the financial crisis and avoid much of the pain experienced in other affected economies around the world. This is the conclusion most attendees at the June 3 World Lithuanian Economic Forum, held in Vilnius, agreed on.

Bringing further economic stability to Lithuania will be the understanding of how to unveil and use its genuine potential, said business leaders gathered from abroad, brought together to discuss Lithuania’s economic hardships and opportunities in the light of current global challenges.
Speakers from the international arena, and of predominantly Lithuanian origin, elaborated on how Lithuania can achieve effective economic development, attract investments, and give local businesses the impetus to grow.
It was a busy one-day event. The forum, titled “Global Economic Challenges: Lithuanian responses,” was host to discussions sparked by evaluations of how Lithuania faced the recent economic crisis, and what should be done in the future in order to boost the country’s economy.

It was repeatedly noted throughout the conference that Lithuania had done rather well in taking appropriate action in response to the global crisis. As a country with a low sovereign debt level at the crisis’ start, it could apply “tax-increasing” measures. Though this did not appear to be an easy path, it “allowed a faster return to economic growth, while the stabilization of public finances created a favorable economic environment for companies to start their business [growth] again,” said Gitanas Nauseda, adviser to the president of SEB in Lithuania.

According to Nauseda, what helped Lithuania remain stable and enjoy quite satisfactory economic growth of around 3-4 percent was its exports, even without large support by government measures that could have served to enhance recovery. It was argued that not only did a wide variety of exports play a special role in providing for stability, independently of what was happening in foreign markets, but also Lithuania’s geographic location, one that ensured accessibility to both Western and Eastern markets. This was essential, as the domestic market was considered an impediment to faster growth, since it lacked certainty about future economic policies.

Discussions on domestic economic problems brought together the issues of the existing tax system and insufficient investment levels. What some say is an absence of transparency and fairness in taxation can hardly instill confidence in the minds of potential investors. Zilvinas Mecelis, founder of Covalis Capital, addressed the need for tax reform from the perspective of inviting highly-skilled specialists with international experience from abroad. For this very purpose, he urged not only to guarantee a reliable tax system, but also to develop “a practical immigration policy,” to attract global professionals. This workforce will pay taxes and contribute to society, deeming it necessary for creating an environment that encourages them “to come and obtain a permanent residence in Lithuania.”

Lithuanian Minister of Finance Rimantas Sadzius, one of the few representatives from the public sector at the forum, similarly agreed on the necessity to make the tax system more stable and transparent, in order to “ensure a proper interaction between the public and private sectors, which Lithuania badly needs at the moment.” At the same time, he claimed that it is particularly important to use different opportunities in securing financing for businesses. The minister put emphasis on the public sector banks in Europe, mentioning, for instance, the European Investment Bank, which does consider such a possibility of investing “not only in huge infrastructure projects, but also in small and medium enterprises.”

The effectiveness of appropriate communication between Lithuania and potential investors was stressed by Eric Stewart, partner with the Washington, DC firm of Williams & Jensen and the president of the recently established American-Lithuanian Business Council. “There are American companies that have the reserves for making investments, but they do not have the confidence to make the investments. Lithuania needs to reach those companies, talk to them,” he argued, implying that a dialogue would probably help both sides make a leap forward. On Lithuania’s side, he says, they need to realize what can be done to improve the investment climate; from the foreign business side, they must find effective ways of approaching the Lithuanian market.

The emigration issue could not have been left without mention by the panelists, though the current government is accused by Mecelis of being reluctant to consider the issue as urgent. While Nauseda called emigration a “derivative, rather than separate, problem that would automatically diminish if the macro-economic challenges were adequately addressed,” Cicero Capital General Director James Oates claimed that the issue does not seem to be merely one mainly of economics; rather, it is a problem of culture, he said. This would be tremendously worrying, since people have been leaving the country in the hundreds of thousands.

Noting that Lithuania was rather adequate in its response to the crisis, Oates underlined the need to “turn adequate into exceptional,” which perhaps would mean taking advantage of what Sadzius considered to be Lithuania’s most crucial internal resource – human capital. “But why are the young people voting with their feet?” Oates asked rhetorically, though referring not only to the political elite, but to businesses, universities, and the cultural elite, as well. “There is much talk about young educated Lithuanians, but where are they? I do not see ministers, and prime ministers, who are in their 20s and 30s; I see people my age. The same goes with business. And those who are innovative have gone. There should be a cultural, generational change. The new government has to realize the opportunity to use these resources, involve the new generation, and bring in new ideas. If such an opportunity is missed, the consequences will not be good. More needs to be done, sometimes taking decisions that feel uncomfortable. There is no future for this magnificent country if people leave, and stay away,” he concluded.

This point was backed by Ruta Jureviciute Laukien, director at U.S.-based C.W. Downer, who underlined the necessity to give the younger generation the possibility to learn creativity and entrepreneurship if Lithuania wants to be globally competitive. There is, indeed, a problem, since universities, she argued, are predominantly occupied with lecture-based teaching, and not focused on practical skills.

Regarding improvements to Lithuania’s global competitiveness, Darius Daubaras, an investment banker for CIS and Central & Eastern Europe at J.P. Morgan, asserted that privatization could be a driving force as a booster for economic growth. The key purpose here would not be for the immediate raising of funds but for the longer-term effects of stimulating the investment and growth of companies, enhancing corporate governance, and increasing know-how, which would allow these companies to be more efficient and, consequently, generate more money for the state in the long run through higher taxes.

To Mecelis, however, the main competition in today’s world is for global professionals, or, as he called them, “people who make things [economic development] happen.” Lithuania, unable to provide globally competitive salaries, loses in this case, which is equally true for the local labor, too. “We need to pay people more, otherwise they will keep leaving,” Mecelis warned.

What was repeatedly asserted at the forum is that there should be room for optimism in relation to Lithuania’s economic future, though one which strongly relies on whether, and how, the country distinguishes its unique resources and uses them to its advantage in global markets. Despite recent achievements, there is still a long way to go. And, continued economic success will be highly dependent on efforts to demonstrate political will in solving current problems.